If there was one thing Mario Monti should have been able to count on, it was the markets. Seven months into his term as Italy’s Prime Minister, a period in which he has muscled through tough pension reforms and painful tax hikes, it’s not surprising that his public support has dropped to half of the more than 70% approval rating he enjoyed shortly after taking office. Nor is it a shock that, with elections to replace him expected in less than a year, the country’s politicians have begun to balk at some of his proposed measures.

The bigger blow is Italy’s rising cost of borrowing — an indicator that investors are starting to lose confidence that the country will be able to pay them back. In the early days of the Monti government, bond yields plunged. From 7%, a number many economists see as unsustainable, they briefly touched down at just under 5% in March before resuming a steady rise. Last week they broke 6%, leading many to wonder once again if Italy might be the next domino in the euro-zone crisis.

To be sure, not all of the country’s financial difficulties can be laid on the former economics professor’s doorstep. The choppy waters of Greek politics and the specter of a banking meltdown in Spain have undermined confidence in economies across the European periphery. But Italy’s troubles are also due to an increasing perception that Monti may be losing his most valuable advantage: his ability to float above the mire of Italian politics, to use his position as an unelected technocrat — uninterested in re-election — to push through liberalization measures that ordinary politicians would have little chance of being able to pass.

Instead, Monti’s proposals seem to be increasingly getting stuck in the rut of politics. While he has passed important measures — most notably tax increases and pension cuts — his most significant accomplishments have usually required sacrifices from the broad middle and working classes. Efforts targeting Italy’s famously entrenched interest groups — its guilds, unions, government workers and politicians — have been less successful. A proposal to overhaul the country’s labor laws — one of Monti’s early flagship proposals — has taken months to be scheduled for a vote, despite having been watered down to near insignificance by parliamentary dealing. “Labor reform has been a turning point,” says Roberto D’Alimonte, a professor of political science at LUISS Guido Carli, a university in Rome. “It’s really been an uphill struggle. It took a lot of energy and showed the limits of his ability to work.”

The Prime Minister’s struggles don’t just hurt him at home, they risk following him to Brussels, where Monti is attempting to persuade countries like Germany to blunt the worst of the European volatility through measures like tighter banking unions or the introduction of European-level bonds, guaranteed by all the member countries. “He needs the domestic reforms as political capital on the European level,” says Erik Jones, director of the Bologna Institute for Policy Research at the Johns Hopkins University School of Advanced International Studies. “If he can’t deliver his agenda on a continuous basis, he’s going to begin to lose moral authority.” Indeed, on Monday, Monti explicitly called on Parliament to pass his proposed labor law before the meeting of the European Council on June 28, saying he would otherwise be negotiating at a disadvantage.

In this, the panicking markets are still in an important way on Monti’s side. His power as Prime Minister lies the fact that Italy’s politicians don’t dare take the blame for bringing him down — especially if that brings the economy down with him. Parliamentary resistance only swelled once bond yields seemed to be under control. “As you reduce the margin of danger, the old politics becomes more assertive,” says Franco Pavoncello, a political scientist at Rome’s John Cabot University. “It’s one thing when your house is burning and another when the fire is already quelled.” On Thursday, Monti announced a deal with Parliament that would see his labor-reform bill in a confidence vote by June 27, the day before the E.U. meeting.

Rising bond yields may give Monti a chance to push once again, to show that he — and his reforms — are indispensable if Italy wants to claw its way out of the crisis. “We have to ask ourselves, What is the counterfactual here?” says Pavoncello. “Where would this country be without this government, if we were still running with the political system before, with every day the markets destroying us because they had zero confidence in the political system.” One hopes Italy’s politicians are asking themselves the same question.